The Court of Chancery has recently issued an opinion granting partial summary judgment in favor of an advancement claim made by a director convicted of wrongdoing. By way of background, an advancement claim can be made by a director or officer to advance funds for litigation assuming there is an available right in the company’s governing documents. If the company at issue is a Delaware corporation, a claim for advancement is governed by Section 145 of the Delaware General Corporation Law (“DGCL”) (8 Del. C. § 145), along with the bylaws of the corporation. A claim for advancement is considered a “summary proceeding” before the Court, which generally moves at a faster pace than typical actions.
In Holley v. Nipro, C.A. No. 9679-VCP (Del. Ch. Dec. 23, 2014), plaintiff George H. Holley was an officer and director of defendant, Nipro Diagnostics, Inc. (“Nipro”). Although Mr. Holley was convicted of wrongdoing, the indemnification rights in the company’s bylaws were drafted generously in favor of Nipro’s directors and officers, and accordingly plaintiff was able to obtain partial summary judgment in favor of his advancement claim. Of note, Mr. Holley was further able to obtain a “fees for fees” award in connection with this matter.
This case is a stark reminder to Delaware companies that they should closely scrutinize their indemnification and advancement rights provided to their directors and officers through their bylaws. Ultimately, as demonstrated in this case, an executive may be entitled to advancement even if already convicted of wrongdoing.
If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.